If you are tired of watching your savings account do nothing after working hard and saving your money, this article is for you. I’m going to break down a simple portfolio that requires very little action or expertise from the person implementing it, and should provide excellent returns over the long-term. Investing isn’t rocket science. You simply want the money you worked for, to now work for you. So let’s get started, and not waste any more time.
So, what are we going to invest in? And how much? How you construct your portfolio will determine the answer to these two questions. In this example, we are going to say we have $10,000 to work with. Remember, never invest money you need. You should act as though this money is gone. This will help you to not react emotionally to market fluctuation.
- 50% ($5,000) in S&P 500 Index ETF. Ticker $SPY
- 10% ($1,000) in ARK Innovation ETF. Ticker $ARKK
- 10% ($1,000) in ARK Fintech innovation ETF. Ticker $ARKF
- 10% ($1,000) in ARK Genomics Revolution ETF. Ticker $ARKG
- 10% ($1,000) in ARK Next Generation Internet ETF. Ticker $ARKW
- 5% ($500) in a company of your choosing +10B market cap.
- 5% ($500) in speculative play. Either crypto currency or stock.
So what’s an ETF?
An ETF is an Exchange Traded Fund. It trades on the Stock Market just like a stock, only it is a fund with multiple stocks in it. It is similar to a mutual fund except you can buy or sell any time the market is open. It is more tax efficient, has no investment minimums, and is very inexpensive to own. ETFs help lower risk due to diversification in the holdings. There are also actively managed ETFs, such as ARK. Companies like ARK Invest have professional investors buying and selling positions within the fund for you. So, now that we understand the construction of each position, let’s understand why I chose these.
1) 50% ($5,000) in S&P 500 Index ETF. Ticker $SPY
This is going to be the meat and potatoes of your portfolio making up half of all capital invested. This ETF represents the S&P 500 index, which is the 500 largest companies in America. From January 2000 to December 2020, the S&P 500 has an average annual return of 4.67% with a total return during that time period of 159.6%. This is a safe bet on corporate America, and should keep your savings slowly climbing with safety in numbers, while society and progress chugs along.
2) 3) 4) 5) 10% in Each ARK ETF
These ETFs will provide high growth with more return and more risk in comparison to the larger more stable companies in the S&P 500. They are actively managed funds, which means professionals are picking and choosing the stocks that end up in the ETF. But, they have to stay within the sector as advertised. As you can see, each ETF is focused on a specific area that ARK believes will be a secular tail-wind, driving company profits in the future. ARK Invest is run by a very smart woman named Cathie Wood. She has a great track record as a stock picker, and is definitely someone you can learn from. You can check out her website at https://ark-funds.com. These ETFs are my personal favorites in regards to higher growth, and are filled with innovative companies. Feel free to search online for other ETFs if you are interested in a specific area to invest in.
6) 5% ($500) in a company of your choosing +10B Market Cap
This is where a bit of fun, and learning come into play. I want you to research and invest in a company of your choosing. The company must be $10 billion in market cap or larger. This will weed out the smaller, more risky companies. The best place to start is a company you are familiar with. Do you shop at Costco? Or have an online business with Etsy? Maybe you run a small business that uses Square’s point of sale products. These are all excellent places to start. Once you have identified a company you are familiar with and like, read its 10-K (annual report) at sec.gov and familiarize yourself with its financials.
7) 5% ($500) in speculative play. Either crypto currency or stock.
This last 5% is at your discretion when it comes to where and how you want to invest. If you are under the age of 40, you can take more risk than if you construct this portfolio at 65. The 65 year old needs the money sooner for retirement than the 40 year old. So if you are young, find a smaller and faster growing company you think is worth while, or put this 5% in Bitcoin or Ethereum. If you are older or just want to play it safe, I would pick another large company at your discretion that you are familiar with and like.
When will I know the right time to buy?
You won’t. Market timing is hard enough for professionals, and it’s better to be invested than to sit around on the sidelines waiting for the right time to pull the trigger. So what you are going to do is slowly put money in over time. This will average out your purchase price so you aren’t stuck buying too high. I recommend buying every couple months and averaging into the above seven positions. This will seem painstakingly boring, and that’s exactly what you want. By all means, if you want action, go loose all your money in Vegas. This is prudent investing for the long term. The only time you should break this systematic buying is when the market is down greater than 15%. If you aren’t scheduled for another month to put money into the market, but the market is down substantially, go ahead and invest. Stick to the plan unless the market decides to go on sale, but never put in more than 20% of the positions total cost at a time. Averaging into each ETF over 12 to 16 months will ensure you own these investments at an acceptable price.
When should I sell?
Keep earning, keep investing, and soon, you won’t have to do the former.
I hope you enjoyed this article and found it applicable to your daily life. If you did, please follow the blog to get updates when I make a new post!
This blog is based on my own personal opinions and views, and should not be taken as professional investment advice. Market speculation is very risky, and you should do your own research before buying or selling a stock. Any action you take upon the information provided on this website is strictly at your own risk.